Tds on processing fees

[Hemant Aggarwal]

Due to high rates charged by Banks many people these days prefer taking Loan from NBFC’s.  TDS u/s 194A is attracted to such interest expenses against NBFC loan @ 10% if Interest payable is more than ₹ 5000.

The confusion which always mints is “Whether TDS deducted on Processing Fees too?”

Processing fees is an additional non-refundable charge that need to be paid when applying for Loan. It is a charge that passes on Expenses to the borrowers for getting documentation, evaluation, work and record of loan repayment etc. The amount of processing fees varies from loan to loan.

Answer to the above question is described below:-

Definition of Interest u/s 2(28A) – ‘Interest means Interest payable in any manner in respect of the money borrowed or debt incurred any included any Service Fee or Other charge in respect of the money borrowed or debt incurred or in respect of any credit facility which has not been utilised.’

 
Conclusion – From the above definition it is crystal clear that processing fee is included in the definition of Interest u/s 2(28A). Hence, TDS should be deducted by resident on Payment of processing fee to financial institutions which are not Governed by Banking Regulation Act.

In case payment is to a BANK same is Exempt as per sec 194A (3).